Microsoft-backed AI startup OpenAI (MSFT) announced on Friday that it needs more funding than initially anticipated to meet its ambitious goals, which means that it has to shift toward a more profit-driven structure. Originally founded as a non-profit with the mission of developing AI for humanity’s benefit, OpenAI has evolved into a hybrid “capped profit” model to secure the capital necessary for its work.
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Indeed, the firm pointed to the “hundreds of billions of dollars” being spent by major companies and said that it must raise “more capital than we’d imagined” in order to stay competitive and continue pursuing its mission. It is worth noting that OpenAI recently raised $6.6 billion, which illustrates just how capital intensive it is to advance AI. However, the funding round also required the company to remove the current profit cap within two years.
As a result, OpenAI plans to restructure in 2025 as a public benefit corporation (PBC). Under this setup, the PBC will manage OpenAI’s operations, while the non-profit arm will focus on charitable initiatives and hire leadership to oversee them. But this plan faces opposition as Meta Platforms (META) has urged California’s attorney general to block the conversion. In addition, Legal experts noted enforcing charitable initiatives largely depends on shareholder control, which raises questions about how closely OpenAI will follow this goals if profit-oriented investors end up controlling the firm.
Is MSFT Stock a Buy?
Although you cannot directly invest in OpenAI, you can buy shares of Microsoft, which has a 49% stake in the company. And according to analysts, Microsoft stock has a Strong Buy consensus rating among 29 Wall Street analysts. That rating is based on 27 Buys and two Holds assigned in the last three months. After a 15% rally in its share price over the past 12 months, the average MSFT price target of $501.69 implies 16.9% upside potential.
